Question

Break Even Analysis

Consider the concept of break even analysis and target income.  What is your understanding of Break Even Analysis and Target Income. Use your own words. How do these analytical tools relate to product pricing and cost management? Provide specific hypothetical, numerical examples of how Break- Even Analysis can impact pricing of any company’s products.

Pricing

Why would a company seek to position themselves as low price or high price item in the market place?  How might this affect sales dollars, sales volume, and profits?

Search and review your course materials for pricing strategies.  Search specifically for the word pricing. Summarize the concepts and issues from the course materials.

Interrelationships

Explain the interrelationships with accounting, information systems, and sales, marketing, and profit planning. For example, how do they impact each other? How is information from one area used in another area? These are just some questions for consideration, but your response should not be limited to these questions only.

Answer 1

Breakeven Analysis is the process of finding the point of output at which the total revenue is equal to cost. Where there is no profit and no loss situation.

But, breakeven is not an exciting position for a business to be in, the business owners and management would be more interested in knowing the amount of sales required in quantity and dollars to achieve a target amount of profit. That is called Target Income.

Both of the analysis helps the business to know exactly:

• what are the costs which are material for the business success,
• what is their true nature i.e. variable or fixed,
• what is the composition of such costs i.e. material, labour etc'
• How much of change in each component affects the profitability of the business,
• What amount of sale price can lead to higher profitability.